Citrix 2006 Annual Report Download - page 40

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of Operations — Overview” and Note 4 to our consolidated
financial statements included elsewhere in this Annual
Report. We anticipate that in 2007, cost of product license
revenues will continue to increase as compared to current
levels as we currently expect sales of our Application
Networking products, which have a hardware component,
to increase. In addition, in 2007, we expect our cost of
services revenues to increase due to increased sales of
our online services products and an increase in technical
support costs and increased sales of services as we grow
our customer base, have more frequent product releases
and more complex products.
Cost of product licenses revenues increased during
2005 as compared to 2004 due primarily to sales of our
Application Networking products, which contain hardware
components that have a higher cost than our other
software products. Cost of services revenues increased
during 2005 compared to 2004 primarily due to increased
sales in our Online Services products due to continued
acceptance of our new and existing online products and,
to a lesser extent, due to increased sales of consulting
and technical support services related to our Application
Virtualization products and sales of services related to
our Application Networking products. Amortization of
product related intangible assets increased during 2005 as
compared to 2004 primarily due to amortization related to
core and product technology acquired in acquisitions. The
increase in amortization of product related intangible assets
was partially offset by other core and product technology
assets becoming fully amortized during the year.
Gross Margin
Gross margin as a percent of revenue was 91.3% for
2006, 93.6% for 2005 and 96.4% for 2004. The decrease
in gross margin as a percentage of net revenue for all
periods presented was primarily due to the increase
in cost of revenues as discussed above. We currently
expect that our gross margin will continue to trend
slightly downwards in 2007 due to the factors discussed
above under Cost of Revenues.
Research and Development Expenses
Year Ended December 31, 2006
Compared to
2005
2005
Compared to
2004(In thousands) 2006 2005(a) 2004(a)
(Restated) (Restated)
Research and development $ 155,331 $ 108,751 $ 86,654 $ 46,580 $ 22,097
(a) See Note 2 to our consolidated financial statements included elsewhere in this Annual Report.
Research and development expenses consisted primarily
of personnel-related costs. We expensed substantially
all development costs included in the research and
development of our products and new functionality
added to our existing products as incurred except for
certain core technologies with alternative future uses.
Research and development expenses increased during
2006 as compared to 2005 primarily due to an increase
in staffing and related personnel costs due to the full year
impact of our 2005 Acquisitions, our 2006 Acquisitions,
continued investments in our business including the hiring
of personnel, and additional compensation expense
related to the adoption of SFAS No. 123R. Excluding the
effects of any pending acquisitions, we expect research
and development expenses to increase in 2007 due to
the acquisition of Ardence in January 2007 and continued
investments in our business including the hiring of
personnel. For more information regarding our acquisitions
see, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Overview” and
Notes 4 and 18 to our consolidated financial statements
included elsewhere in this Annual Report.
Research and development expenses increased during
2005 compared to 2004 primarily due to an increase in
staffing and related personnel costs due to the Net6 and
the 2005 Acquisitions, and to a lesser extent, increased
staffing and personnel costs related to our Application
Virtualization products.